How would you mitigate the environmental risk

[Abdenour Achab]

I live in California, and bought a tax lien certificate (technically a Certificate of Purchase) on vacant commercial land in Arizona, sight unseen, at an online auction. It's 36 acres, assessed at about $100,000, and walking distance from a highway.

The assessor's website does value the improvements at about half the assessed value. But there is no visible building on Google Maps, and Xome.com states 0 square feet for the structure.

Big red flag: I got it for 16%, the maximum interest rate in an interest rate bid down state. Which means I may well have been the only person foolish enough to bid on it, among the billions of people with internet access.

On the other hand, the fact that the owner didn't pay taxes since 2018 is not a big red flag. The land belongs to a partnership, and the (or at least a) main guy in the partnership died a couple of years ago at age 90. And the partnership had been paying property taxes for 16 years prior to 2018.

I own the lien in my own name. The redemption period has expired four months ago. And, two days ago, I mailed out the 30 day notices to start foreclosure. My suspicion is, the dead guy won't bother to redeem the property.

My main concern is environmental contamination. Before buying the lien, I checked the EPA superfund website, and their map of known toxic sites. Neither showed any red flag for the property, or any other property within a mile radius.

If you were the lien owner, how would you go about this?

1) Would you have a lawyer start a foreclosure in your own name?

2) Would you register an Arizona LLC to do business in California, transfer the lien to the LLC, then have the LLC's lawyer foreclose in the name of the LLC. And keep paying $800 a year franchise tax?

3) If you went the LLC route, how much money you would put into the LLC to significantly reduce the risk the EPA and Arizona's environmental agency pierce the corporate veil. If I remember correctly, there is an insurance company insuring against the risk of having the corporate veil pierced. But they require following a lot of corporate formalities, and funding the LLC with $50,000. $800 a year in franchise tax fees is my no means sufficient to buy liability protection from a determined litigant.

4) Would you hire an environmental testing company to test the land (to which you have no legal access - but I doubt the dead guy would call the cops on you) once the foreclosure process has progressed well enough, but before it's conclusion, so that you tell the lawyer to stop foreclosure in case some major contamination is discovered?

5) Would you get legal residence in Venezuela, which has no extradition treaty with the United States, to escape with your money if and when you receive a million dollars bill from the EPA?

What else would you do to mitigate the risk of environmental contamination that would cost more than the land is worth.

Note that I am not concerned about minor contaminations that can be fixed for under $25,000. Just major stuff that would end up costing me more than the cleaned up land would be worth.

[Jaron Walling]

What's the average price per acre and how did you know it was deal? In my market quality farmland sells for about $12-15k per acre. Land values have been inflated to ridiculous levels lately. It's to the point you think it's a joke. I see land for sale at $24k+ per acre. No thank you. 

"Would you get legal residence in Venezuela, which has no extradition treaty with the United States, to escape with your money if and when you receive a million dollars bill from the EPA?" - Nobody in here is comfortable answering this question. 

How far away from this land do you live? 36 acres is a lot of land and I would have at least driven to see it and got eyes on it. Clearly you didn't but someone should drive there and check it out. Look for clues and look for problems. 

You don't want an environmental mess on you hands. Remediation isn't cheap. Leave it to the experts. You can hire an environmental company for a phase 1 assessment. If they find clues or red flags you go phase 2. You'll need to be the owner at this point I'm sure. Phase 3 is when shovels hit the dirt and things get expensive. Hopefully you don't have that problem. 

[Chris Seveney]

@Abdenour Achab

You can check and see with the county what environmental studies have been done on property

What was the prior use of the property that is giving you a cause for concern?

[Abdenour Achab]

Quote from @Chris Seveney:

@Abdenour Achab

You can check and see with the county what environmental studies have been done on property

What was the prior use of the property that is giving you a cause for concern?

Thanks @Chris Seveney for your suggestion.

I have called the county and spoken to someone in the Treasurer's office and someone in the Assessor's office. Both told me that their department doesn't do environmental studies on properties, and suggested to talk to the Planning & Zoning / Developmental Service. That service not only told me that their department doesn't do environmental studies, but that no department in the county government does.

> What was the prior use of the property that is giving you a cause for concern?

Other than a fence and barb wire around the property, the property has never been developed. Which in itself is a red flag for commercial land close within walking distance of a highway. But I am not really concerned about the property being worthless. That ship has mostly sailed the day I bought the lien. Even though if I knew for sure that it is worthless, I would stop subtaxing it and wouldn't bother paying a lawyer to foreclose on it. 

As I stated in my original post, the major red flag is that I got the lien, in an online auction, at 16%, the maximum interest rate in a bid down state (Arizona). Which means there was little to no competition for it. I bought tens of tax liens certificates in online auctions in Arizona over several years, and got the vast majority of them at interest rates between 0% and 4%, inclusive. By way of comparison, the same year I bought the lien on the 36 acres parcel of commercial land being discussed here at 16%, I bought a lien on a double wide mobile home affixed to a permanent foundation in some remote Arizona town, and I got that one at 0%.

The bulk of the property is not in a flood zone. But the edges are in a flood zone, and there is no road access to the property during floods. I hope, but doubt, that that's what turned off other investors.

[David McAlister]

Abdenour,

There are several options other than a Phase I if you want to get a feel for the environmental conditions of the property. A transaction screen is about half the effort and half the price of a full Phase I environmental site assessment. We also perform what we call, "RSRAs" or Risk Search and Risk Assessment. It is basically a background database search - nearly all the same databases searched for a full Phase I, without a site walk or evaluation of historic documentation such as air photos, topographic maps, fire insurance maps, or the city directories (Phone Books).

[Abdenour Achab]

Thank @David McAlister for the suggestion. Actually, after I initially asked my question in this forum, I found a company that does perform the initial half of Phase 1. Everything except a walkthrough. So, I ordered one of their packages, which came with several reports, none of which showed a red flag.

What I don't know yet is whether or not, having ordered those reports, I satisfy EPA's "All Appropriate Inquiries" rule. Since the property is fenced, the above is really the best I can do without breaking and entering. But I suspect EPA didn't design a special rule for tax lien and foreclosure investors, who are limited in the due diligence they can legally perform.

[Will Sifert]

Quote from @Abdenour Achab:

Thank @David McAlister for the suggestion. Actually, after I initially asked my question in this forum, I found a company that does perform the initial half of Phase 1. Everything except a walkthrough. So, I ordered one of their packages, which came with several reports, none of which showed a red flag.

What I don't know yet is whether or not, having ordered those reports, I satisfy EPA's "All Appropriate Inquiries" rule. Since the property is fenced, the above is really the best I can do without breaking and entering. But I suspect EPA didn't design a special rule for tax lien and foreclosure investors, who are limited in the due diligence they can legally perform.

 Which county is it in? I just started buying tax liens in AZ so I can't speak from experience, just research. I know some counties will let you do the foreclosure process yourself but others will not. I believe I remember reading something that says if the property is owned by anyone other than an individual you need to hire an attorney to do the foreclosure. 

What is the zoning of the property. Have you talked to the county permits and zoning office to find out if there is any restrictions on the property? Maybe it can't be built on for some reason? Maybe because it is land locked, no one else bid on it???  If it is land locked have you explored what you would need to do to legally get access to the land?

You mentioned one of the owners had died. Have you researched to find out who his heirs are and notified them as well? 

I assume you would want to sell the land once you take ownership ? For something that could be worth this much money (100K) My first step would have been to hire a qualified attorney opposed to DYI tax foreclosure.  From my understanding if you DYI you would never get title insurance. If you hired a reputable attorney to handle the foreclosure, there are title insurance companies that would write a policy because they know that a qualified attorney handled it.

Getting the property at 16% is a huge red flag. I agree with you there especially if it is really worth that much money. It seems anything over 5 - 10 acres in size or worth more than 20K gets bid down to 0% or close to it.  AZ is very competitive online.